Evaluating the government’s privatisation programme

The privatisation of state companies is almost always a process fraught with competing concerns. However, while controversies attached to the sale of state assets are ubiquitous, Jordan is unique in the region in its assessment of its privatisation programme. The last year has seen the completion of a painstaking evaluation process of nearly 20 privatisation deals carried out over recent years, the results of which have been crucial in neutralising the phenomena of rumour, claim and counter-claim which often attend such government decisions. Just as importantly, the findings of the report allow the nation’s economic planners to more effectively implement the next phase of the government’s long-term strategy of harnessing the power of the private sector to develop the nation’s economy.

The Evaluation

The Privatisation Evaluation Committee (PEC) was established in March 2013 as a result of a royal directive, and was tasked with assessing the privatisation efforts that successive Jordanian governments had embarked upon since 1989. The committee was headed by Omar Razzaz, the chair of the King Abdullah II Fund for Development, and included a number of leading figures from the local business community, none of whom were directly involved with any of the privatisation deals under examination, as well as representatives from the International Finance Corporation, the Islamic Development Bank and the European Bank for Reconstruction and Development.

The committee was granted six months from the time of its first meeting to complete its review, which included an examination of 19 companies that had gone through the privatisation process as well as a large number of documents and policy papers that had been generated by the government’s implementation of its decades-old strategy.

The companies surveyed came from a wide range of sectors, such as mining, telecommunications, aviation, water and electricity, and included some of Jordan’s most prominent institutions – with the flagship carrier Royal Jordanian Airlines being perhaps the most internationally recognisable of them.

Each deal was evaluated according to eight fundamental questions, namely: what was the government’s rationale for privatising the company? Were the proper administrative, constitutional and legal procedures followed throughout the process? Was the company assessed properly before the decision was made? Did the performance of the privatised company improve after the process was completed? Were the public and the employees of the concerned company given enough information regarding the process? What was the overall effect of the process on the employees of the company? How did the privatisation of the company affect the wider economy? And, how were the revenues accrued as a result of the privatisation deal utilised?

Findings

The findings of the privatisation programme report proved to be mixed. In some cases, such as that of Royal Jordanian Airlines, both the rationale for the privatisation and the ensuing process were held to be proper, while in others the application of the policy was found wanting. The privatisation of a prominent phosphate company, for example, was discovered to have been brought about through direct negotiations with a single investor rather than through a properly established tender process, while in other cases the committee found that there had been legal violations during the execution of privatisation deals. The report also determined that the government would have better served the interests of the nation by maintaining strategic interests in some sectors considered central to the economy, such as mining and cement.

On The Plus Side

On the positive side of the balance sheet, the report found that the government’s privatisation programme had boosted the performance of the companies in question, provided more jobs for Jordanians and brought the state around JD1.7bn ($2.4bn) in revenues, of which JD1.5bn ($2.1bn) went to paying off the kingdom’s debts.

The PEC’s findings echoed an earlier report commissioned by the World Bank which examined privatisations carried out between 1998 and 2008. According to the World Bank’s appraisal, this tranche of privatisations brought $2.3bn in sales proceeds which were used to buy Paris Club debt at a discounted price, bringing about a reduction of government debt from 100% of GDP in 2000 to 60% in 2008 and thereby greatly enhancing macroeconomic stability. Additionally, the report also found that privatised companies showed substantial gains in financial performance, while consumers benefitted from improvements in service.

With regard to employees of these companies, the government’s policy of avoiding involuntary retrenchments protected jobs in most cases, with privatised companies showing only a 2% reduction in employment which was more than offset by some 25,000 new jobs in expanding fields such as telecommunications and IT. Moreover, employees of these privatised companies were also found to have made real wage gains in most cases, as well as benefitting from improved benefits and training opportunities.

The New Era

The aim of the PEC was not to apportion blame or seek redress for any infringements of the law or policy committed during the privatisation of state entities, but to shed light on the process so that lessons could be learned from it.

Speaking at a press conference at the report’s launch, Razzaz stated that a lack of information and facts had resulted in a state of uncertainty and scepticism among the public regarding the question of privatisation, and that the most important issue henceforth is to “follow up on the findings of the report and to be transparent with the public when they consider future deals”.

An important recommendation of the report addressed the legislative framework that surrounds private sector activity in the kingdom. According to its findings, there is now an urgent need for the drafting of a new law to govern the relationship between the public and private sectors where they combine in project development.

Now that the government has divested itself of the bulk of state assets considered suitable for privatisation, planners are turning their attention to what might be described as new era of private sector activity – the principal instrument of which will be the public-private partnership (PPP).

Crucial Work

Following on from the PEC’s recommendations, the government has already set up a PPP advisory committee, which is headed by Kamel Mahadin, chief commissioner of the Aqaba Special Economic Zone Authority, and comprised of representatives of the public and private sectors, as well as local community figures.

The work of the advisory committee is crucial to the future of PPP activity in Jordan, which currently lacks an adequate legal framework. This legislative lacunae threatens to inhibit the development of some economic sectors, especially those outside the water and power arenas where much of the government’s attention has hitherto been focused and sector-specific PPP protocols have been established.

For example, there is currently no provision on a sector-wide basis by which the right of private developers to collect fees are established. A dedicated PPP law that codifies issues such as this is therefore of central importance from a strategic point of view if Jordan is to effectively utilise private sector capital in its economic development.

Just as important, however, is the codification of the rights of citizens, which require reassurance that their interests are safeguarded in any future PPP developments. Here, as with the government’s earlier programme of privatisation, there is much room for mistrust and discontent if transparency is sacrificed for expediency. Presenting honest data and addressing mistakes is key to keeping public support.

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The Report: Jordan 2014

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